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FA 5: Assets acquired and disposed of after deduction of payments under lease
or “Tax rules for buying and selling previously leased assets”
You could also call this:

“Treating finance leases as sales and loans for tax purposes”

When you rent a personal property item under a finance lease, the law treats it differently. The lease is considered a sale of the item from the person who owns it (the lessor) to you (the lessee) when the lease starts.

The law sees it like this: The lessor is giving you a loan to buy the item. You are using that loan to purchase the item. This means that the rules about depreciation, financial arrangements, and other parts of the Income Tax Act 2007 apply to this situation as if it were a loan and purchase, not just a lease.

For more information about depreciation, you can look at subpart EE of the Income Tax Act 2007.

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Next up: FA 7: Determining amount of loan

or “How to calculate the loan amount in a finance lease”
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Part F Recharacterisation of certain transactions
Recharacterisation of certain commercial arrangements

FA 6Recharacterisation of amounts derived under finance leases

  1. When a personal property lease asset is leased under a finance lease, the lease is treated as a sale of the lease asset by the lessor to the lessee on the date on which the term of the lease starts, and—

  2. the lessor is treated as giving a loan to the lessee for the lease asset; and
    1. the lessee is treated as using the loan to buy the lease asset; and
      1. subpart EE (Depreciation), the financial arrangements rules, and the other provisions of this Act apply to the arrangement as recharacterised.

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